The combination of a health crisis and an economic crisis at the same time makes the coronavirus-induced recession unlike any other experienced in Australia over the past 100 years.

A myriad uncertainties about what will happen next as well as the weaknesses in critical infrastructure, particularly health and social security systems, mean the pathway to recovery is likely to be slow and painful.

Recovery from the effects on the economy could be slow and painful. Illustration: David Rowe

There is far too much optimism in financial markets about the pace of the recovery in business profits despite the Prime Minister Scott Morrison warning the economy will be "frozen" for six months.

Markets appear to be pricing in a V-shaped recovery even though consensus is emerging among economists that the unemployment rate will be about 7 per cent by the end of 2021.

The global financial crisis saw the sharemarket plunge 54 per cent and the 1987 stockmarket crash saw about 50 per cent wiped off share values. This crisis is far worse in terms of impact on the real economy and yet shares rebounded about 10 per cent his week after falling 38 per cent.

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Economic growth is expected to go backwards by 10 per cent in the June quarter as unemployment soars to at least 10 per cent and possibly 12 per cent.

It is arguable Morrison's short, sharp deep freeze could actually turn into a long, dark economic winter because of a failure to get the money efficiently to where it's needed and to spend enough to avoid a deeper downturn.

George Tharenou, chief economist at UBS in Sydney, says a far bigger federal government fiscal stimulus through wage subsidies "is needed now to provide some hope".

Clear risk

He points out that the total government COVID-19 fiscal stimulus is 3.8 per cent of 2019 GDP, but only 1.5 per cent of GDP in the year to June 2020, which is much less than federal fiscal stimulus implemented during the global financial crisis of 4.3 per cent of GDP.

Tharenou says that without far larger fiscal stimulus in the very near-term – similar to the several countries which are paying a large share of salaries for three months if small businesses keep them employed – "there is a clear risk unemployment surges even more to the highest since the last depression".

John Dahlsen, a respected Melbourne businessman, who owns a building, hardware and garden centre chain, says the government needs to move more quickly to get money into the hands of workers.

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Dahlsen, who employs about 1200 people, says the government should pay $550 per fortnight per employee via the Australian Taxation Office directly into bank accounts rather than use Centrelink.

Dahlsen is willing to match the government payment to ensure his workers stay in the workforce, which he says will mean a faster return to normal operations when the crisis is passed.

John Abernethy, a fund manager who is a director of arts and crafts company Jasco, says employees of Jasco in New Zealand were being paid the government's wage subsidy of $NZ585 direct into their bank accounts within seven days of the company applying for the cash.

"The Australian social security system is totally unprepared for the significant lift in the level of unemployed citizens that is now occurring," he says.

"The requirement that hard-working taxpayers, who have lost their jobs through no fault of their own, are required to line up (physically or online) to apply for social security is a national disgrace."

One aspect of this crisis which is different to the last is that the leverage in the system is not in corporations but in households. Australia came through the global financial crisis virtually unscathed thanks to rapid action to underwrite the banking system and pump prime the economy.

Last time round the Reserve Bank of Australia moved quickly to provide the banking system with guaranteed wholesale funding. This time the RBA is providing the liquidity to allow the banks to support businesses and households hit by drastic declines in income.

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The global financial crisis was marked by excessive corporate debt. About $98 billion in capital raisings were conducted in Australia to rebuild balance sheets. Many of these cap raisings, especially in the property sector, were at the behest of banks.

Now, Australia has one of the highest levels of household debt in the world and that could pose a problem for the pace of recovery.

David Plank, head of Australian economics at ANZ Bank, says high household debt is likely to amplify the hit to the Australian economy from the virus.

He says the shock to household incomes is likely to force households to reassess their appetite for borrowings over the medium term and extend the period of recovery as they boost savings to pay off loans.

More than 10,000 people poured into the nation's capital on the ninth day of protests over police brutality, but what awaited them was a city that no longer felt as if it was being occupied by its own country's military.